If you were overblown by the events of 2020, there might be tax suggestions, and there may also be tax comfort for you under one of the coronavirus relief packages passed in 2020.
It is the time of the year many taxpayers think about filing their taxes to get their tax refunds. According to the IRS, almost 75% of taxpayers got a tax refund last year, and the standard direct deposit tax refund was close to $3,000 last tax season. If you received the tax refund you deserved and think you could have gotten more the previous year, or you were impacted by the events that took place in 2020, here are four tips to help you heighten your tax refund in the year 2021.
- Take the best advantage of the tax interests provided by coronavirus relief or comfort measures.
- Don’t take the standard or average deduction if you can set it out.
- Claim the relative or friend you’ve been supporting.
- Take above-the-line deductions if eligible.
Read more for more information regarding each strategy for getting a larger tax refund.
Take the Best Advantage of the Tax Interests Provided by Coronavirus Relief or Comfort Measures
The previous year was full of events that impacted just about everyone’s lives in one way or another. If you were affected by the circumstances of 2020, there might be tax consequences, and there may also be tax benefits or relief for you under one of the coronavirus relief packages passed in 2020. The Relief and Economic Security Act, Coronavirus Aid, or CARES Act, and the Coronavirus Response and Relief Supplemental Appropriations Act provided a chain of relief or comfort measures like expanded unemployment benefits and stimulus payments. Stimulus payments are not at all taxable under the relief packages, and if you did not receive the full stimulus payment, you might be able to claim extra in the form of a Recovery Rebate Credit when you file for your taxes. The Recovery Rebate Credit can heighten your refund or lower what you have to pay.
If you have received expanded unemployment benefits due to being laid off or furloughed, one most important thing to be informed of is that unemployment income is always taxable; however, you may be eligible for income-based tax credits and deductions that you weren’t before, like the child and dependent care credit or saver’s credit. The CARES Act also provides a provision that allows taxpayers who claim the standard deduction to take an above-the-line deduction for up to $300 in cash donations to charity.
Suppose you are self-employed and sick, taking care of a family member, or quarantined. In that case, you may be able to claim new tax credits called qualified ill and family leaves credits under the Families First Coronavirus Response Act.
If you took a coronavirus-related withdrawal from your retirement account under the CARES Act, you might also be able to waive the 10% penalty for early withdrawal before age 59½. Your distributions will also be included in your taxable income over three years instead of all included in your 2020 income.
Don’t Take the Standard or Average Deduction If You Can Set Out
Under tax reform, more and more people may take the average deduction instead of setting out because the average deduction nearly doubled ($12,400 for single filers and $24,800 for married or couple taxpayers filing jointly), and some tax deductions were either abolished or reduced. IRS has confirmed that about 90% of taxpayers now claim the standard or average deduction instead of itemizing their tax write-off, up from about 70% before the new tax law comes.
Although more taxpayers will claim the standard or average deduction due to the changes, and the standard or average deduction will help lower your taxes, you may find that you can still itemize or set out your deductions to get a bigger tax refund if you take a little time gathering some of your receipts. If you are close enough to the standard deduction thresholds, don’t forget about some added expenses that may push you above the standard deduction. These added expenses include qualified charitable contributions; casualty and theft losses if they result from a federally declared disaster, points paid on a new mortgage or refinanced home loan, and gambling losses up to gambling winnings.
Claim the Relative or Friend You Have Been Supporting
If you have been supporting your relative, significant other, or friend, you may be able to claim them as a dependent. There are few rules concerning who qualifies, but the deduction is legitimate if your non-relative or friend has lived with you the whole year (relatives don’t need to live with you), doesn’t provide half of their support, and didn’t earn more than $4,300 in taxable income in the year 2020. Although you can no longer claim the conditional exemption under tax reform, you can still claim the other conditional credits for non-child dependents worth up to $500.
Take Above-the-Line Deductions If Eligible
Above-the-line tax deductions allow you to lessen your taxable income without itemizing. Some of the Examples include: if you are a teacher or professor who paid for your students’ school supplies, including personal protective tools, went back to school to land that promotion, paid alimony in 2020 (if your divorce was final before 2019), paid student loan interest, paid self-employment tax, contributed to your IRA or had unpayable moving expenses if you are active-duty military. Reducing your taxable income may also help you get a more considerable advanced premium tax credit if you can help pay for insurance in the health insurance marketplace.
At UBOS, our experts are always available to guide you with anything related to tax planning, tax strategies, and more. Do contact us today at ubos.pro to begin your consultation and learn more about how we can help you!
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